Fletcher v Eden Refuge Trust

• Jurisdiction: New Zealand
• Judge: White J
• Judgment Date: 30 March 2012
• Neutral Citation: [2012] NZCA 124
• Docket Number: CA212/2010
• Court: Court of Appeal
• Date: 30 March 2012

Between

Charles Fletcher

Appellant

and

Eden Refuge Trust

First Respondent

and

Joanne Lydia Maletino

Second Respondent

and

Callum Macdonald

Third Respondent

and

The Attorney-General

Fourth Respondent

and

Charles Hohepa

Fifth Respondent

[2012] NZCA 124

Court:

Harrison, Wild and White JJ

CA212/2010

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against High Court finding of dishonest assistance by a lawyer — charitable trust owned a property — there was only one remaining trustee of trust (“H”) who consulted lawyer (“F”) and was advised as to his position — trust property sold — F made application for short term mortgage secured over the property on behalf of H — F made number of advances to H from trust funds from F's trust account — payments made using F's personal American Express card since H was in Spain — whether test for dishonest state of mind required consideration of subjective element of knowledge and reasons for acting — whether defence available under s89(1) Law Practitioners Act 1982 (solicitor to pay client's money into trust account at bank — money paid on behalf of person held exclusively for that person) as F was obliged to accept, and act in accordance with, his client's instructions.

Counsel:

D A Wood for Appellant

G Bogiatto for Third Respondent

C R W Linkhorn and R I Berkeley for Fourth Respondent

• A The appeal is dismissed.

• B The appellant is ordered to pay reasonable indemnity costs and usual disbursements to both the third and fourth respondents.

JUDGMENT OF THE COURT

REASONS

(Given by White J)

Table of Contents

	Para No
Introduction	[1]
Factual background	[7]
High Court trial	[33]
High Court judgment	[36]
The case for Mr Fletcher	[55]
A subjective element for dishonest assistance?	[62]
A defence under s 89 of the Law Practitioners Act 1982?	[71]
Indemnity costs?	[87]
A stay?	[92]
Result	[93]

Introduction

1 In the High Court Callum MacDonald, the current trustee of the Peoples Worship in Freedom Mission trust (the PWFM trust), and the Attorney-General, in his role as protector of charitable trusts, were successful in proving claims of:

On the basis of these findings Mr Hohepa and Mr Fletcher were also held jointly and severally liable for the principal sum of $253,445.21, interest (simple and compound) and scale costs. 2

• (a) breach of trust, breach of fiduciary duty and conversion against Charles Hohepa, the previous trustee of the PWFM trust; and

• (b) breach of fiduciary duty, knowing receipt and dishonest assistance against Charles Fletcher, a lawyer practising as Fletcher Law in Hamilton, who acted for Mr Hohepa and the PWFM trust. 1

2 This appeal by Mr Fletcher is solely against the findings of Duffy J in the High Court of breach of fiduciary duty, knowing receipt and dishonest assistance. There is no appeal by Mr Hohepa and no appeal by Mr Fletcher against quantum. Nor is there a cross-appeal by Mr MacDonald or the Attorney-General against the order for scale costs.

3 In the absence of any appeal by Mr Hohepa, there is no dispute that, in his capacity as trustee of the PWFM trust, he misappropriated to his personal use funds belonging to the trust. The overarching issue on the appeal by Mr Fletcher therefore is whether, in his capacity as the lawyer acting for the trust and Mr Hohepa, he should also be held liable for the loss suffered by the trust.

4 Mr Fletcher did not dispute that he was aware that Mr Hohepa was misappropriating the funds of the PWFM trust, but argued that this knowledge did not give rise to liability on his part.

5 At the hearing of the appeal before us, this issue was further narrowed because Mr Wood, counsel for Mr Fletcher, acknowledged that, if the Judge's finding that Mr Fletcher dishonestly assisted Mr Hohepa to misappropriate the funds of the PWFM trust was upheld, Mr Fletcher would be liable to meet the judgment against him. This acknowledgment meant that the appeal focused on the grounds raised by Mr Fletcher for challenging that finding, namely:

• (a) the Judge failed to apply the correct legal test for dishonest assistance and failed to ask and answer the question why Mr Fletcher had assisted Mr Hohepa to misappropriate the funds belonging to the PWFM trust; and

• (b) the Judge had failed to accept that Mr Fletcher, in his capacity as Mr

  Hohepa's lawyer, was obliged to accept his client's instructions in respect of the funds of the PWFM trust and, as required by s 89(1) of the Law Practitioners Act 1982, disburse them in accordance with those instructions.

6 We consider these grounds for challenging the Judge's finding of dishonest assistance after setting out the relevant factual background and the relevant findings made by the Judge.

Factual background

7 The factual background is essentially undisputed and the following summary is based largely on the narrative provided to the Court by counsel for Mr Fletcher.

8 The PWFM trust was created in 1962 with a religious charitable purpose. Its original trustees purchased a property at 44 New North Road, Auckland, in trust for its members.

9 It appears that the members of the trust subsequently became factionalised with one group of members (called the Smith group) incorporating themselves under both the Incorporated Societies Act 1908 and the Charitable Trusts Act 1957 with the name PWF Mission Trust Board, a process completed in 1978. This group changed the name of the trust board to the Eden Refuge Trust in 1999. It also lodged caveats against the title to the property at 44 New North Road in 1986 and 2000. A further caveat was lodged against title to the property in 2002 by a Mr and Mrs Hicks who claimed an interest under an agreement to mortgage.

10 Mr Hohepa was appointed a trustee of the PWFM trust in 1984 and his name was entered on the title to the property. With the death of the other trustees in 1986 and 2001, Mr Hohepa became the sole trustee and ultimately the sole registered proprietor of the property.

11 In the meantime disputes within the PWFM trust had led to the exclusion of the Smith group from the premises on the property in 1984 and an extensive correspondence between the lawyers for the parties as to the ownership of the property.

12 The 1986 caveat lapsed after it was challenged by the trustees under s 145 of the Land Transfer Act 1952.

13 In September 2001 Mr Hohepa sought advice from Mr Fletcher as to his position. Mr Fletcher had been in practice as a barrister and solicitor either in partnership or on his own account for 28 years. For the last 15 years his primary focus had been as a specialist in the law of trusts and tax and he had acted for quite a few charitable trusts. 3

14 After discussions with Mr Hohepa and after obtaining copies of the relevant documents and correspondence, including Land Transfer Office and Ministry of Economic Development records, Mr Fletcher provided Mr Hohepa, who by then was residing in Madrid, Spain, with a comprehensive letter of advice dated 26 September 2002. The letter set out in detail the background facts relating to the trust and the property, the terms of the trust, the distinction between property ownership and the church congregation, the charitable religious nature of the trust and Mr Hohepa's “rights and obligations” as a result of the existence of the Smith group, which he described as the Smith congregation.

15 The specific advice which Mr Fletcher gave to Mr Hohepa in the letter of 26 September 2002 as to his “rights and obligations” was as follows:

• 36. As the sole surviving Trustee it is now your responsibility to determine an appropriate religious purpose that the property, or the proceeds of sale of the property, can be used for in terms of Charitable Trust Act 1957. The primary issue that you will have to address, in the event of a challenge by the Smith congregation, is why the Smith congregation would not qualify as an appropriate beneficiary of the Trust under this provision particularly given their association with the property since (at least) 1984.

• 37. Section 3 of the Charitable Trust Act 1957 deals with property acquired and held on behalf any religious group. Section 4 deals with evidence of appointment of Trustees and Section 5 deals with

  issues to do with the Transfer of Properties. We enclose a copy of these three sections for your information.

• 38. We believe that you have the following legal rights:–

  • (a) To appoint any additional person/s to act as Trustee/s with you to hold ownership of the property,

  • (b) To sell the property to any third party and hold the proceeds of sale for the charitable purposes referred to in the Declaration of Trust,

  • (c) To transfer ownership of the property to a new group of persons acting as Trustees of a religious congregation (unincorporated or to an incorporated Trust Board) on such terms and conditions as you think fit, for example by way [of] sale to the Smith congregation or the Eden Refugee Trust.

  • (d) Gift the sale proceeds of the property to any other religious body.

  • (e) Retain ownership of the property for the benefit of a revived Peoples Worship in Freedom Mission Religious congregation.

• 39. You also have the right to make an application to the High Court seeking directions as to what should be done with the property or the proceeds of sale of the property. This is the most recommended course of action where there is a dispute.

• 40. As a Trustee you have obligations to hold the property for the purposes that are set out in the Declaration of Trust. This creates a fiduciary duty and obligation on you to exercise your legal rights and duties in good faith for the benefit of those entitled under the Trust.

• 41. The extent of your fiduciary obligations and duties require you to:–

  • (a) Act in good faith and in the interest of the Trust and its charitable purposes,

  • (b)...